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Trials of Cases involving Assets Management Issued for the First Time
[2022-08-04]

 

  

Financial and Commercial Trials in 2021 by Shanghai Courts Reported and White Paper on Trials of Cases involving Assets Management Issued for the First Time

On August 4, 2022, Shanghai High People’s Court (“SHPC”) held a press conference to report on the financial and commercial trials of Shanghai courts in 2021, issue a white paper and top 10 financial and commercial cases tried by Shanghai courts in 2021, and meanwhile release the Report on Trials of Cases involving Asset Management Disputes by Shanghai Courts (2019-2021). This is the 7th session on providing judicial services and support for the high-quality regional development by Shanghai courts.

Mao Ronghua, Deputy Secretary of the Party Leadership Group and Vice President of SHPC, Shan Suhua, Chief Judge of the Financial Division of SHPC, and Sha Xun, Deputy Chief Judge of the Financial Division of SHPC, introduced the relevant situation and answered questions from the reporters. Li Zeli, Spokesman and Director of the Information Division of SHPC, presided over the conference. Song Xiaoyan, Dean of the Law School of Shanghai University of Finance and Economics, attended the conference and delivered a speech online. Media reporters, and some NPC deputies and CPPCC members also attended online.

It was reported that in 2021, Shanghai courts accepted a total of 197,484 financial and commercial cases of first instance, up 10.16% year on year, and concluded 197,090 cases, up 10.18% year on year; accepted a total of 3,348 financial and commercial cases of second instance, which hit a record high in the past five years.

Mao Ronghua introduced that the substantial growth in the number of cases concerning disputes over financial loan contracts and derivative cases related to financing drove the rise in the total subject-matter amounts. In 2021, the total subject-matter amounts of first-instance financial and commercial cases accepted by Shanghai courts reached 199.9 billion yuan, up 10.7% year on year. Among them, the total subject-matter amounts of cases concerning disputes over financial loan contracts and guaranty contracts increased significantly, accounting for more than 50% of the total. In terms of the types of cases, the top five types of financial and commercial cases accepted involved disputes over financial loan contracts, credit cards, financial lease contracts, insurance, and misrepresentations relating to securities, accounting for 97.3% of the total number of first-instance financial and commercial cases.
In the white paper, SHPC sorted out six characteristics of financial and commercial cases, including substantial growth in the number of cases concerning financial loan contract disputes, increasingly obvious transmission effect of financial policies on financial disputes, effective judicial services to safeguard the benign and healthy development of the capital market, emerging problems in connection/transition between old and new laws and judicial interpretations, common legal problems related to electronic commercial drafts and frequent financial disputes over supply chain financing.

Among the financial and commercial cases accepted by Shanghai courts in 2021, the number of cases concerning financial loan contract disputes ranked first for the first time, mainly because the financial institutions have further strengthened loan management and intensified collection efforts according to the requirements of financial risk prevention and control, resulting in a significantly shortened cycle from the conclusion of loan contracts to the initiation of litigation, in other words, intensive defaults. At the same time, financial policies have played an increasingly significant guiding role in the trading behavior of financial market entities. Take the financing sector for example. Financial regulatory authorities have continuously strengthened the requirements for financial risk prevention and control, and financial institutions have actively implemented various mechanisms for financial risk prevention and control, and strengthened the credit review and post-loan management of borrowers. The average subject-matter amount in a single case of the three types, i.e. cases of dispute over financial loan contracts, financial lease contracts and small loan contracts, accepted by Shanghai courts in recent three years shows a significant downward trend.
In 2021, Shanghai courts issued 30 judicial proposals in the financial sector to strengthen the prevention and control of financial risks, reasonably determine financing costs, improve the design of contract texts, and regulate improper litigations, etc., which received positive feedback from market entities, the white paper said.
In view of the current economic and financial situation, SHPC puts forward three possible trends in future financial disputes in the white paper, namely: (i) financial and commercial cases related to promoting opening-up at a higher level and achieving higher-quality development will gradually appear; (ii) requirements for specialized trials of cases concerning disputes over securities, futures and financial derivatives trading will be more demanding; and (3) financial and legal disputes related to epidemic prevention and control will gradually increase.
In recent years, amid the rapid development of asset management business in China, regulatory arbitrage, unclear leverage, multi-layer nesting, inadequate performance of investor suitability obligations and other problems in the asset management industry have emerged, leading to a lot of disputes. The problems reflected in asset management disputes, such as insufficient legal systems, lack of self-discipline consciousness of market entities, and inadequate implementation of regulatory policies, need to be solved urgently.
In order to promote the unification of adjudication philosophy and standards, stabilize market expectations, further elaborate adjudication philosophy to the social public, and alert the market to risks, SHPC issued the Report on Trials of Cases involving Asset Management Disputes by Shanghai Courts (2019-2021), with the aim to promote the healthy and standardized development of the asset management industry.
According to Shan Suhua, Shanghai courts concluded a total of 2,672 first-instance cases involving asset management disputes from 2019 to 2021, with the total subject-matter amounts increased by 23.79% from more than 26.9 billion yuan in 2019 to more than 33.3 billion yuan in 2021. The causes of cases became diversified, and the most common cases were those of disputes over entrusted wealth management contracts, financial entrusted wealth management contracts and securities investment fund transactions. In terms of the subject of litigation, 1,725 cases were filed by the investors (mostly natural person investors), accounting for 64.56%; 1,384 cases were filed against the managers, accounting for 51.80%. It was common that the manager, sales organization and underlying asset debtor acted as the co-defendants.

At the same time, with the promotion of diversified dispute resolution mechanism, a high proportion of cases (1,075 ones, 40.23%) involving asset management disputes were settled by means of mediation and withdrawal in the past three year; 587 cases (21.97%) ended with dismissal because relevant subjects involved were suspected of criminal crimes or investment losses were uncertain due to the not liquidated investment projects; and 754 cases (28.22%) ended with judgments.

In view of the increasingly complex legal relationships, more stakeholders and increasing importance of coordination between adjudication rules and regulatory policies in cases involving asset management disputes, the white paper points out that during the trial of such cases, attention should be paid to the disputes over the nature of asset management contracts and the validity of relevant clauses, disputes caused by the sales promotion of asset management products, disputes over the asset management products and investment products, disputes over the liquidation and withdrawal of asset management products, etc. At the same time, the court suggests that it should further promote legislative harmonization, and determine and improve the superior law system in asset management industry; strengthen the regulatory policy coordination and establish a unified asset management supervision system; urge market institutions to strengthen their capacity building and boost compliant and prudent operation; strengthen investor education and enhance their risk prevention awareness and risk management ability; and promote joint coordination mechanisms so as to effectively prevent and defuse financial risks.

The top 10 cases released by SHPC cover all kinds of financial market entities including banks, financial leasing companies, asset management institutions and listed companies, etc., and the types of disputes are representative in related financial fields, Sha Xun said.
For example, during the trial of China’s first ordinary representative securities litigation case filed  as per the Judicial Interpretations of the Supreme People’s Court’s on Representative Securities Litigation, Shanghai effectively explored the online acceptance of representative securities litigation, representative selection, evidence obtainment, case handling and enforcement of compensation, etc., providing reproducible and promotable experience for implementing the representative securities litigation system in China. The case was selected by SPC as one of the top 10 nominated cases in 2021 on promoting the rule of law in the new era, and rated by China Securities Regulatory Commission as a typical case of investor protection in 2022.

At the conference, Mao Ronghua, Shan Suhu and Sha Xun answered the reporters’ questions on measures taken by Shanghai courts to deal with epidemic-related financial disputes, how the court responds to the higher-level demand of asset management centers for administration of justice in the financial sector, and  how the court strengthens the protection of small and medium investors.
As to the financial disputes caused by the COVID-19 epidemic, Mao Ronghua said that after the outbreak in Shanghai, SHPC in time revised the Q&As on the Application of Law in the Trial of COVID-19 Related Cases (2022 Revision) to respond to the eight issues of concern on the application of law in the trial of disputes over insurance contracts, credit cards and financial loan contracts, etc. At present, a few financial and commercial cases directly related to the epidemic were accepted by Shanghai courts, mainly involving insurance contract disputes related to isolation insurance. It is predicated that relevant cases may gradually enter judicial proceedings in the future.

According to Song Xiaoyan’s comments, it can be seen from one of the possible trends in future financial disputes mentioned in the white paper, “financial and commercial cases related to promoting opening-up at a higher level and achieving higher-quality development will gradually appear”, that Shanghai courts have fully studied, predicted and been well prepared for the increasing financial and commercial disputes related to global asset management center, green finance, fintech, offshore renminbi trading, and real estate investment trust (REITs), etc. in the financial opening-up and financial innovation fields. She believed that the white paper is of great significance to the construction of judicial protection system for small and medium investors, and provides guidance on the determination of credit enhancement measures (e.g. difference make-up) in asset management business, which is helpful to build a mechanism for resolving international financial and commercial disputes, clarify the boundaries of responsibilities of each party and further regulate the market, manifesting the professionalism of Shanghai courts in handling financial and commercial cases, and their active role in promoting market development and creating a law-based business environment.

Mao Ronghua pointed out that the 20th Party Congress will be held in 2022. Affected by the epidemic, the external environment is changing rapidly and becoming more complicated, Shanghai’s status as a central node of the domestic circulation and a strategic link of China’s new development paradigm of “dual circulation” is further elevated, the responsibility and mission that financial sector serves the real economy are further strengthened, and the need to create a law-based environment in the financial sector suitable for Shanghai’s status as an international financial center becomes more urgent. In the future, Shanghai courts will continue to give play to their judicial functions and provide support for Shanghai to expand the institutional opening-up and move towards a higher level. It is suggested that government departments at all levels, financial regulators, financial industry associations and market entities work together to strengthen the function of the financial sector in serving real economy, fully promote the resumption of work and production, improve the risk prevention mechanism, and strengthen coordination in work to ensure the steady and healthy development of the financial market. 

 

Report on Trials of Financial and Commercial Cases by Shanghai Courts (2021).docx

Ten Typical Financial and Commercial Cases Tried by Shanghai Courts (2021) .docx

Report on Trials of Cases involving Asset Management Disputes by Shanghai Courts (2019-2021).docx

 


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The English version of this article, which is translated from the Chinese version by CTPC, is for reference only and shall be subject to the corresponding contents on the Chinese webpage.
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